The COVID-19 pandemic has increased the demand for single-use packaging and personal protective equipment (PPE) made of plastic. At the same time, the supply of polyolefins such as polypropylene, high density polyethylene (HDPE) and polyethylene terephthalate (PET) was reduced as hurricanes and winter weather affected maiden production along the Gulf Coast.
Joel Morales, Houston-based executive director of Polyolefins Americas at IHS Markit, said the pandemic had created a huge demand for polyethylene in 2020. Morales spoke during the Resin Market Update at the 2021 Plastic Recycling Conference taking place online April 7-8.
While many industries were preparing for a “really bad year” in 2020 due to the pandemic, Morales said the opposite happened for a number of industries, including plastics, which added pricing power and margin growth for new resin producers.
He added that he expects margin stability and pricing power in the virgin polyethylene (PE) sector to dissipate once new capacity goes online and the effects are expected to kick in by mid-year.
Morales said sustainability “took a back seat in 2020” as protecting people from the coronavirus became a priority, and consumption of single-use plastic packaging and demand for plastics for hygiene and medical applications increased.
This increased demand was met by a tighter supply, compounded by hurricanes and winter weather affecting resin producers along the Gulf Coast. Although there was sufficient capacity for nameplates, he said that due to these events and social distancing measures to protect employees, these “cannot be fully executed”. “The supply couldn’t keep up with the demand.”
Morales added that he anticipates oversupply in the markets, with global PE prices correcting in the second half of the year. While no real capacity will be added this year, Morales said significant capacity will come online in 2022, which will put pressure on the markets.
Virgin polypropylene (PP) production has also been influenced by the weather along the Gulf Coast. Morales said producers have only recently begun to approach full capacity operations.
China is expected to have a significant impact on global trends for PE, he said. “As China goes, the rest of the world goes.” Morales found that PE demand in China increased 10 percent in 2020.
According to Morales, China will also make an important contribution to the creation of new PP capacities, which will have an impact on global markets.
While demand in Canada and the US exceeded expectations in 2020, PE demand growth was more modest at 2 percent.
According to Morales, Post-Consumer HDPE Natural Resin (PCR) is a “premium specialty product that has prevailed over the past year” in terms of pricing. He said the lack of top-quality material also contributed to the demand and prices for the material increasing over the past year.
Morales added that he believes the historic spike in natural HDPE-PCR prices will end soon once virgin prices decline. “I’m not assuming that the decline in Virgo will be seen one-on-one on the natural HDPE side.”
PP-PCR is also expected to lower prices as demand for virgin material catches up, Morales said. He assumes that the 60 percent decline will be compared to the decline in maiden prices. “PP is not the easiest product to sort and collect,” he added. “People won’t use it [PP PCR] because they are trying to save money on Virgo. “
As with PE, virgin PP capacity was unavailable in North America last year due to pandemic and weather issues. This helps record the spreads on recycled PP, Morales said. He added that new new PP capacities won’t go online until around this time next year. The market has been sold out since August last year and will remain sold out until the second half of May or June.
During the meeting, Martin Wiesweg, Managing Director of Polymers EMEA at IHS Markit based in Germany, also made a presentation. He addressed PET markets.
Like HDPE and PP, PET saw an increase in global consumption in 2020, he said. Demand for PET is expected to double over the next decade, led by China as well as Southeast Asia, the Indian subcontinent and Africa.
According to Wiesweg, 56 percent of post-consumer PET bottles worldwide are collected for recycling, which corresponds to a total volume of 12.5 million tons in 2019. In China and the rest of Asia, an informal “army of collectors” is helping to get this material for recycling. He predicted that 21.5 million tons of PET bottles, or 66 percent, will be collected for recycling by 2028.
Fiber continues to absorb the lion’s share of the recycled PET, with bottle-to-bottle recycling accounting for 17 percent of global demand. Wiesweg said that fiber markets will continue to dominate PCR demand, noting that bottle-to-bottle recyclers basically have to buy this material from the fiber manufacturers who could consume all of the material produced.
Weisweg predicted that recycled PET (rPET) will continue to displace virgin PET in Europe, adding that the profitability of rPET in Europe will remain high. He also said that insert systems are likely to become the collection model of choice around the world as they deliver higher quality material. He also said brand owners are likely to drive investment in collection programs.